Endurance Specialty Holdings Ltd.

Transcription

1 Endurance Specialty Holdings Ltd. INVESTOR FINANCIAL SUPPLEMENT THIRD QUARTER 2008

2 Endurance Specialty Holdings Ltd. Wellesley House, 90 Pitts Bay Rd. Pembroke HM 08, Bermuda Investor Relations Phone: (441) Fax: (441) This report is for information purposes only. It should be read in conjunction with other documents filed by Endurance Specialty Holdings Ltd. pursuant to the Securities Act of 1933 and the Securities Exchange Act of 1934.

3 Financial Supplement Table of Contents i. Basis of Presentation i ii. Organizational Chart of Corporate Structure ii I. Financial Highlights 1 II. Consolidated Financial Statements a. Consolidated Statements of (Loss) Income - Quarterly 2 b. Consolidated Statements of Income - YTD 3 c. Consolidated Balance Sheets 4 d. Endurance Operating Income Profile 5 e. Segment Distribution 7 f. Segment Data 8 g. Deposit Accounting Adjustment Impacts on Segment Data 20 III. Other Financial Information a. Return on Equity Analysis 22 b. ROE Component Analysis - Operating and Investment Leverage 23 c. Investment Portfolio Information 24 d. Structured Securities Detail 25 e. Largest Twenty Five Corporate Holdings 26 IV. Loss Reserve Analysis a. Activity in Reserve for Losses and Loss Expenses 27 b. Activity in Reserve for Losses and Loss Expenses by Segment 28 c. Activity in Reserve for Losses and Loss Expenses by Development Tail 29 d. Analysis of Unpaid Losses and Loss Expense 30 V. Shareholder Return Analysis a. Weighted Average Dilutive Shares Outstanding 31 b. Operating (Loss) Income Reconciliation 32 c. Dilutive Shares Sensitivity Analysis 33 d. Book Value Per Share Analysis 34 e. Growth in Book Value Per Share Analysis 35 VI. Regulation G 36 Application of the Safe Harbor of the Private Securities Litigation Reform Act of 1995: Some of the statements in this financial supplement may include forward-looking statements which reflect our current views with respect to future events and financial performance. Such statements may include forward-looking statements both with respect to us in general and the insurance and reinsurance sectors specifically, both as to underwriting and investment matters. Statements which include the words expect, intend, plan, believe, project, anticipate, seek, will, and similar statements of a future or forward-looking nature identify forward-looking statements in this financial supplement for purposes of the U.S. federal securities laws or otherwise. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in the Private Securities Litigation Reform Act of Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only to the date on which they are made. We undertake no obligation to publicly update or review any forward looking statement, when as a result of new information, future developments or otherwise. Page All forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or may be important factors that could cause actual results to differ from those indicated in the forward-looking statements. These factors include, but are not limited to, developments in the world s financial and capital markets that could adversely affect the performance of Endurance s investment portfolio or access to capital, changes in the composition of Endurance s investment portfolio, competition, possible terrorism or the outbreak of war, the frequency or severity of unpredictable catastrophic events, changes in demand for insurance or reinsurance, rating agency actions, uncertainties in our reserving process, a change in our tax status, acceptance of our products, the availability of reinsurance or retrocessional coverage, retention of key personnel, political conditions, the impact of current regulatory investigations, changes in accounting policies, changes in general economic conditions and other factors described in our Annual Report on Form 10-K for the year ended December 31, 2007.

4 BASIS OF PRESENTATION DEFINITIONS AND PRESENTATION All financial information contained herein is unaudited, except the balance sheet and income statement data for the years ended December 31, 2007, December 31, 2006 and December 31, 2005, which was derived from the Company's audited financial statements. Unless otherwise noted, all data is in thousands, except for per share, percentage and ratio information. As used in this financial supplement, "common shares" refers to our ordinary shares and class A shares, collectively. Endurance Specialty Holdings Ltd., along with others in the industry, uses underwriting ratios as measures of performance. The loss ratio is the ratio of claims and claims adjustment expense to earned premiums. The acquisition expense ratio is the ratio of underwriting expenses (commissions, taxes, licenses and fees, as well as other underwriting expenses) to earned premiums. The general and administrative expense ratio is the ratio of general and administrative expenses to earned premiums. The combined ratio is the sum of the loss ratio, the acquisition expense ratio and the general and administrative expense ratio. These ratios are relative measurements that describe for every $100 of net premiums earned, the cost of losses and expenses, respectively. The combined ratio presents the total cost per $100 of earned premium. A combined ratio below 100% demonstrates underwriting profit; a combined ratio above 100% demonstrates underwriting loss. GAAP combined ratios differ from statutory combined ratios primarily due to the deferral of certain third party acquisition expenses for GAAP reporting purposes and the use of net premiums earned rather than net premiums written in the denominator when calculating the acquisition expense and the general & administrative expense ratios. NM - Not meaningful; NA - Not Applicable; LTM - Latest twelve months. i

5 CORPORATE ORGANIZATION CHART Endurance Specialty Holdings Ltd. (Bermuda) Endurance Specialty Insurance Ltd. (Bermuda) Endurance Services Limited (U.K.) Endurance U.S. Holdings Corp. (U.S.) Endurance Worldwide Holdings Limited (U.K.) ARMtech, Inc. (U.S.) ARMtech Insurance Services, Inc. (U.S.) Endurance Reinsurance Corporation of America (U.S.) Endurance Elite Assurance Company Ltd. (Bermuda) Endurance U.S. Specialty Services Corporation (U.S.) Endurance Worldwide Insurance Limited (U.K.) ARMtech Holdings, Inc. (U.S.) American Merchants Casualty Company (U.S.) Endurance American Insurance Company (U.S.) Endurance Specialty Insurance Marketing Corp. of California (U.S.) Endurance Specialty Insurance Marketing Corp. of Illinois (U.S.) Endurance Specialty Insurance Marketing Corp. of Massachusetts (U.S.) Endurance Specialty Insurance Brokerage Corp. of New York (U.S.) American Agri- Business Insurance Company (U.S.) Endurance American Specialty Insurance Company (U.S.) ENH Managers, Inc. (U.S.) Endurance U.S. Healthcare Insurance Services Company (U.S.) ii

6 CONSOLIDATED FINANCIAL HIGHLIGHTS QUARTER ENDED NINE MONTHS ENDED Previous Previous SEPTEMBER 30, SEPTEMBER 30, Quarter Year to Date Change Change HIGHLIGHTS Net (loss) income ($99,392) $131,401 $81,757 $368,577 (175.6)% (77.8)% Net (loss) income (attributable) available to common shareholders (103,267) 127,526 70, ,952 (181.0)% (80.4)% Operating (loss) income [a] (56,058) 133, , ,242 (141.9)% (63.7)% Operating (loss) income (attributable) available to common shareholders [a] (59,933) 129, , ,617 (146.1)% (65.7)% Operating cash flow 187, , , , % 4.7% Gross premiums written 624, ,271 2,010,798 1,503, % 33.8% Net premiums earned 509, ,742 1,334,757 1,194, % 11.8% Total assets 7,869,212 7,396,926 7,869,212 7,396, % 6.4% Total shareholders' equity 2,268,717 ## 2,525,621 ## 2,268,717 # 2,525,621 # (10.2)% (10.2)% PER SHARE Basic (losses) earnings per common share AND SHARES DATA Net (loss) income (as reported) ($1.79) $1.98 $1.20 $5.45 (190.4)% (78.0)% Operating (loss) income (as reported) [a] ($1.04) $2.02 $2.17 $5.63 (151.5)% (61.5)% Diluted (losses) earnings per common share Net (loss) income (as reported) ($1.79) $1.81 $1.10 $5.02 (198.9)% (78.1)% Operating (loss) income (as reported) [a] ($1.04) $1.85 $1.99 $5.18 (156.2)% (61.6)% As Reported Weighted average common shares outstanding 57,570 64,468 58,314 65,530 (10.7)% (11.0)% Weighted average common shares outstanding and dilutive potential common shares 57,570 70,431 63,633 71,126 (18.3)% (10.5)% Book Value Per Book value [b] $36.55 $36.21 $36.55 $ % 0.9% Common Share Diluted book value (treasury stock method) [b] $33.68 $32.81 $33.68 $ % 2.7% FINANCIAL RATIOS Return on average common equity (ROAE), net (loss) income [c] (4.7)% 5.7% 3.2% 16.1% (10.4) (12.9) ROAE, operating (loss) income [a] [c] (2.7)% 5.8% 5.8% 16.7% (8.5) (10.9) Return on beg. common equity (ROBE), net (loss) income [c] (4.4)% 5.9% ## 3.0% 17.0% (10.3) (14.0) ROBE, operating (loss) income [a] (2.6)% 6.0% ## 5.5% 17.6% (8.6) (12.1) Annualized ROAE, net (loss) income [c] (18.8)% 22.6% 4.3% 21.5% (41.4) (17.2) Annualized ROAE, operating (loss) income [a] [c] (10.9)% 23.1% 7.7% 22.2% (34.0) (14.5) Annualized ROBE, net (loss) income (17.7)% 23.4% 4.0% 22.7% (41.1) (18.7) Annualized ROBE, operating (loss) income [a] (10.3)% 23.9% 7.3% 23.4% (34.2) (16.1) Annualized investment yield 2.0% 4.4% 3.2% 5.1% (2.4) (1.9) Loss ratio 87.4% 46.6% 68.2% 50.6% GAAP Acquisition expense ratio 13.8% 19.2% 16.5% 18.2% (5.4) (1.7) General and administrative expense ratio 11.4% 13.8% 12.0% 12.8% (2.4) (0.8) Combined ratio 112.6% 79.6% 96.7% 81.6% STAT Acquisition expense ratio 16.2% 23.8% 15.5% 19.2% (7.6) (3.7) General and administrative expense ratio 11.6% 14.6% 10.3% 11.2% (3.0) (0.9) Combined ratio 115.2% 85.0% 94.0% 81.0% [a] Operating income represents after-tax operational results excluding, as applicable, after-tax net realized capital gains or losses and after-tax net foreign exchange gains or losses. Please see page 32 for a reconciliation to net income. [b] For detailed calculations please refer to page 34. [c] Average common equity is calculated as the arithmetic average of the beginning and ending common equity balances for the stated periods, which excludes the $200 million liquidation value of the preferred shares. 1

7 CONSOLIDATED STATEMENTS OF (LOSS) INCOME - QUARTERLY QUARTER ENDED SEPT. 30, 2008 JUNE 30, 2008 MAR. 31, 2008 DEC. 31, 2007 SEPT. 30, 2007 SEPT. 30, 2006 UNDERWRITING REVENUES Gross premiums written $624,144 $518,063 $868,591 $277,750 $423,271 $476,213 Premiums ceded (130,121) (48,678) (227,804) (62,282) (45,655) (90,791) Net premiums written $494,023 $469,385 $640,787 $215,468 $377,616 $385,422 Change in unearned premiums 15,606 (16,300) (268,744) 184,994 22,126 22,553 Net premiums earned $509,629 $453,085 $372,043 $400,462 $399,742 $407,975 Other underwriting (loss) income (2,712) 1,933 (740) 9,044 1,697 (1,837) Total underwriting revenues $506,917 $455,018 $371,303 $409,506 $401,439 $406,138 UNDERWRITING EXPENSES Losses and loss expenses $445,501 $275,325 $189,502 $144,852 $186,456 $188,033 Acquisition expenses 70,598 75,636 74,374 89,501 76,604 81,857 General and administrative expenses 57,771 52,493 50,044 64,655 55,121 48,535 Total underwriting expenses $573,870 $403,454 $313,920 $299,008 $318,181 $318,425 Underwriting (loss) income ($66,953) $51,564 $57,383 $110,498 $83,258 $87,713 OTHER OPERATING REVENUE Net investment income $27,410 $60,482 $46,878 $65,310 $62,605 $63,581 Interest expense (7,535) (7,534) (7,534) (7,532) (7,533) (7,528) Amortization of intangibles (2,588) (2,637) (2,688) (1,905) (1,127) (1,158) Total other operating revenue $17,287 $50,311 $36,656 $55,873 $53,945 $54,895 (LOSS) INCOME BEFORE OTHER ITEMS ($49,666) $101,875 $94,039 $166,371 $137,203 $142,608 OTHER Net foreign exchange (losses) gains ($15,477) $5,621 ($3,107) ($6,729) ($700) ($3,633) Net realized losses on investments (30,069) (4,013) (11,484) (4,125) (3,055) (6,375) Income tax expense (4,180) (145) (1,637) (2,987) (2,047) (4,370) NET (LOSS) INCOME ($99,392) $103,338 $77,811 $152,530 $131,401 $128,230 Preferred dividends (3,875) (3,875) (3,875) (3,875) (3,875) (3,875) NET (LOSS) INCOME (ATTRIBUTABLE) AVAILABLE TO COMMON SHAREHOLDERS ($103,267) $99,463 $73,936 $148,655 $127,526 $124,355 KEY RATIOS/PER SHARE DATA Loss ratio 87.4% 60.7% 50.9% 36.2% 46.6% 46.1% Acquisition expense ratio 13.8% 16.7% 20.0% 22.3% 19.2% 20.1% General and administrative expense ratio 11.4% 11.6% 13.5% 16.2% 13.8% 11.9% Combined ratio 112.6% 89.0% 84.4% 74.7% 79.6% 78.1% Weighted average basic shares outstanding 57,570 58,558 58,823 62,225 64,468 66,339 Weighted average dilutive shares outstanding 57,570 63,712 64,503 68,326 70,431 71,487 Basic (losses) earnings per common share ($1.79) $1.70 $1.26 $2.39 $1.98 $1.87 Diluted (losses) earnings per common share ($1.79) $1.56 $1.15 $2.18 $1.81 $1.74 ROAE, net (loss) income [a] (4.7)% 4.3% 3.2% 6.4% 5.7% 6.8% [a] Average common equity is calculated as the arithmetic average of the beginning and ending equity balances for the stated periods, which excludes the $200 million liquidation value of the preferred shares. 2

8 CONSOLIDATED STATEMENTS OF INCOME - YTD NINE MONTHS ENDED YEAR ENDED SEPT. 30, 2008 SEPT. 30, 2007 SEPT. 30, 2006 DEC. 31, 2007 DEC. 31, 2006 UNDERWRITING REVENUES Gross premiums written $2,010,798 $1,503,365 $1,498,847 $1,781,115 $1,789,642 Premiums ceded (406,603) (143,858) (161,738) (206,140) (204,078) Net premiums written $1,604,195 $1,359,507 $1,337,109 $1,574,975 $1,585,564 Change in unearned premiums (269,438) (165,169) (102,250) 19,825 53,010 Net premiums earned $1,334,757 $1,194,338 $1,234,859 $1,594,800 $1,638,574 Other underwriting (loss) income (1,519) (7,442) (328) 1,602 1,390 Total underwriting revenues $1,333,238 $1,186,896 $1,234,531 $1,596,402 $1,639,964 UNDERWRITING EXPENSES Losses and loss expenses $910,328 $604,229 $696,210 $749,081 $827,630 Acquisition expenses 220, , , , ,489 General and administrative expenses 160, , , , ,373 Total underwriting expenses $1,291,244 $974,918 $1,071,006 $1,273,926 $1,335,492 Underwriting income $41,994 $211,978 $163,525 $322,476 $304,472 OTHER OPERATING REVENUE Net investment income $134,770 $215,966 $185,416 $281,276 $257,449 Interest expense (22,603) (22,593) (22,513) (30,125) (30,041) Amortization of intangibles (7,913) (3,381) (3,474) (5,286) (4,600) Total other operating revenue $104,254 $189,992 $159,429 $245,865 $222,808 INCOME BEFORE OTHER ITEMS $146,248 $401,970 $322,954 $568,341 $527,280 OTHER Net foreign exchange (losses) gains ($12,963) ($1,241) $11,250 ($7,970) $21,021 Net realized losses on investments (45,566) (14,177) (18,434) (18,302) (20,342) Income tax expense (5,962) (17,975) (16,454) (20,962) (29,833) NET INCOME $81,757 $368,577 $299,316 $521,107 $498,126 Preferred dividends (11,625) (11,625) (11,625) (15,500) (15,500) NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $70,132 $356,952 $287,691 $505,607 $482,626 KEY RATIOS/PER SHARE DATA Loss ratio 68.2% 50.6% 56.4% 47.0% 50.5% Acquisition expense ratio 16.5% 18.2% 19.1% 19.3% 19.4% General and administrative expense ratio 12.0% 12.8% 11.2% 13.6% 11.6% Combined ratio 96.7% 81.6% 86.7% 79.9% 81.5% Weighted average basic shares outstanding 58,314 65,530 66,393 64,697 66,436 Weighted average dilutive shares outstanding 63,633 71,126 71,428 70,540 71,755 Basic earnings per common share $1.20 $5.45 $4.33 $7.82 $7.26 Diluted earnings per common share $1.10 $5.02 $4.03 $7.17 $6.73 ROAE, net income [a] 3.2% 16.1% 16.0% 22.9% 25.6% [a] Average common equity is calculated as the arithmetic average of the beginning and ending equity balances for the stated periods, which excludes the $200 million liquidation value of the preferred shares. 3

9 CONSOLIDATED BALANCE SHEETS SEPT. 30, 2008 JUNE 30, 2008 MAR. 31, 2008 DEC. 31, 2007 SEPT. 30, 2007 JUNE 30, 2007 ASSETS Cash and cash equivalents $514,875 $656,158 $549,692 $567,825 $600,042 $625,662 Fixed income investments available for sale, at fair value (1) 4,398,816 4,604,653 4,710,467 4,647,590 4,791,313 4,728,942 Short term investments available for sale, at fair value 136, ,646 12, Other investments 338, , , , , ,241 Premiums receivable, net 1,130,184 1,101,610 1,088, , , ,106 Deferred acquisition costs 202, , , , , ,537 Securities lending collateral 134, , , , , ,884 Prepaid reinsurance premiums 205, , , ,594 92,466 99,446 Losses recoverable 281, , , ,354 96,008 66,377 Accrued investment income 32,893 37,930 33,650 38,543 36,075 40,443 Goodwill and intangible assets 202, , , ,632 69,388 70,456 Deferred tax assets 31,978 14,788 17, ,926 57,993 Receivable on pending investment sales 196,481 2,070 2,131 3,209 81,546 1,323 Other assets 63,002 73,667 50,630 60,791 50,852 43,760 TOTAL ASSETS $7,869,212 $7,886,356 $7,875,915 $7,271,153 $7,396,926 $7,227,170 LIABILITIES Reserve for losses and loss expenses $3,278,934 $3,080,274 $2,928,427 $2,892,224 $2,841,810 $2,767,525 Reserve for unearned premiums 1,201,292 1,222,830 1,269, , ,046 1,027,229 Deposit liabilities 85,701 89, , , , ,073 Reinsurance balances payable 320, , , , , ,012 Securities lending payable 135, , , , , ,884 Debt 447, , , , , ,213 Payable on penidng investment purchases 44,621 3, ,485 33,090 Deferred tax liability Other liabilities 86,066 80, , ,601 74,915 61,298 TOTAL LIABILITIES $5,600,495 $5,352,461 $5,337,741 $4,758,894 $4,871,305 $4,847,324 SHAREHOLDERS' EQUITY Preferred shares Series A, non-cumulative $8,000 $8,000 $8,000 $8,000 $8,000 $8,000 Common shares 57,657 59,642 60,098 60,364 64,081 64,591 Additional paid-in capital 1,042,511 1,107,219 1,127,594 1,165,300 1,355,468 1,378,685 Accumulated other comprehensive (loss) income (86,146) (5,282) 62,705 57,725 10,652 (47,525) Retained earnings 1,246,695 1,364,316 1,279,777 1,220,870 1,087, ,095 TOTAL SHAREHOLDERS' EQUITY $2,268,717 $2,533,895 $2,538,174 $2,512,259 $2,525,621 $2,379,846 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $7,869,212 $7,886,356 $7,875,915 $7,271,153 $7,396,926 $7,227,170 check Book value per common share $36.55 $39.97 $39.83 $38.94 $36.21 $33.67 Diluted book value per common share (treasury stock method) $33.68 $36.72 $36.00 $35.05 $32.81 $30.56 RATIOS Debt-to-capital 16.5% 15.0% 15.0% 15.2% 15.0% 15.8% (1) Fixed income investments include fixed maturity securities and preferred equity securities. 4

10 ENDURANCE SPECIALTY HOLDINGS LTD. Annual Aggregate Risk Curve Endurance Operating Income Profile as of July 1, 2008 Stated objective is to limit our loss in a 1-in-100 year to 25% of our capital or less; our current level is 21.5% of shareholders' equity at September 30, Average Result $330 Mil Gain Median Result $380 Mil Gain Prob bability 1-in-500 Year $882 Mil Loss 1-in-250 Year $729 Mil Loss 1-in-100 Year $487 Mil Loss 1-in-50 Year $330 Mil Loss 1-in-25 Year $209 Mil Loss 1-in-10 Year $61 Mil Gain Operating Result - $ Millions The above chart represents a cumulative analysis of our in-force underwriting portfolio on a full year basis based on thousands of potential scenarios. Loss years are driven largely by the occurrence of natural catastrophes and incorrect pricing of other property and casualty exposures. The operating income depicted includes net premiums earned plus net investment income, acquisition expenses and G&A expenses. The operating income depicted excludes the effects of income tax (expenses) benefits, amortization of intangibles and interest expense. Forecasted investment income, acquisition and G&A expenses are held constant across all scenarios. Losses included above are net of reinsurance. Our stated objective is to maintain a risk management tolerance that limits our loss in a 1-in-100 year year to be no more than 25% of our shareholders' equity. Changes in Endurance's underwriting portfolio, investment portfolio, risk control mechanisms, market conditions and other factors may cause actual results to vary considerably from those indicated by our value at risk curve. For a listing of risks related to Endurance and its future performance, please see "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31,

11 Annual Aggregate Risk Curve Annual Aggregate Risk Curve Comparison Change from July 1, June 30, 2008 to July 1, June 30, 2009 Change from Jan. 1, Dec. 31, 2008 to July 1, June 30, 2009 July 1, Jan. 1, July 1, $ % $ % (in millions) June 30, 2008 Dec. 31, 2008 June 30, 2009 Change Change Change Change Median Result $391 $481 $380 ($11) (2.9%) ($101) (26.6%) Average Result (12) (3.6%) (91) (27.6%) 1 in 10 year annual gain (3) (4.9%) % 1 in 25 year annual loss (141) (121) (209) (68) 32.5% (88) 42.1% 1 in 50 year annual loss (319) (248) (330) (11) 3.3% (82) 24.8% 1 in 100 year annual loss (468) (438) (487) (19) 3.9% (49) 10.1% 1 in 250 year annual loss (694) (659) (729) (35) 4.8% (70) 9.6% 1 in 500 year annual loss (884) (775) (882) 2 (0.2%) (107) 12.1% Changes in Endurance's underwriting portfolio, investment portfolio, risk control mechanisms, market conditions and other factors may cause actual results to vary considerably from those indicated by our value at risk curve. For a listing of risks related to Endurance and its future performance, please see "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31,

12 SEGMENT DISTRIBUTION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 Gross Premiums Written = $2,013 million [a] Other Specialty [b] 39% Source of Business Property 29% Insurance 61% Business Segments Casualty 32% Reinsurance 39% Broker Distribution - Insurance Broker Distribution - Reinsurance Aon 5% Other 20% Marsh 5% Other 17% W illis 25% Aon 18% Independent Agents 70% Benfield 12% Guy Carpenter 28% [a] Prior to deposit accounting adjustments. [b] Other specialty includes the agriculture line in the Insurance segment and agriculture, marine, aerospace and surety and other in the Reinsurance segment. 7

13 CONSOLIDATED SEGMENT DATA FOR THE QUARTER ENDED SEPT. 30, 2008 Total Deposit Company Accounting Reported Insurance Reinsurance Sub-total Adjustment [a] Totals UNDERWRITING REVENUES Gross premiums written $372,936 $251,228 $624,164 ($20) $624,144 Net premiums written $248,601 $245,442 $494,043 ($20) $494,023 Net premiums earned $270,298 $240,975 $511,273 ($1,644) $509,629 Other underwriting loss (2,712) (2,712) Total underwriting revenues $270,298 $240,975 $511,273 ($4,356) $506,917 UNDERWRITING EXPENSES Losses and loss expenses $194,477 $257,514 $451,991 ($6,490) $445,501 Acquisition expenses 24,065 44,529 68,594 2,004 70,598 General and administrative expenses 31,675 26,096 57, ,771 Total expenses $250,217 $328,139 $578,356 ($4,486) $573,870 UNDERWRITING INCOME (LOSS) $20,081 ($87,164) ($67,083) $130 ($66,953) GAAP RATIOS Loss ratio 71.9% 106.9% 88.4% 394.8% 87.4% Acquisition expense ratio 8.9% 18.5% 13.4% (122.0)% 13.8% General and administrative expense ratio 11.8% 10.8% 11.3% % Combined ratio 92.6% 136.2% 113.1% 272.8% 112.6% STATUTORY RATIOS Loss ratio 71.9% 106.9% 88.4% 394.8% 87.4% Acquisition expense ratio 8.8% 22.7% 15.7% (12,245.0)% 16.2% General and administrative expense ratio 12.5% 10.6% 11.6% % Combined ratio 93.2% 140.2% 115.7% (11,850.2)% 115.2% [a] For internal management reporting purposes, underwriting results by segment are presented on the basis of applying reinsurance accounting to all reinsurance contracts written. However, for financial statement presentation purposes, management determined that certain reinsurance contracts written during the period were more appropriately accounted for under the deposit method of accounting specified by AICPA SOP 98-7 whereby net premiums due on such contracts were recorded as deposit liabilities. The adjustment herein reconciles the Company's underwriting results by segment to the Company's financial statement presentation. 8

14 CONSOLIDATED FINANCIAL RATIOS FOR THE QUARTER ENDED SEPT. 30, 2008 AS REPORTED Total Company Reported Insurance Reinsurance Sub-total Totals [a] GAAP RATIOS Loss ratio 71.9% 106.9% 88.4% 87.4% Acquisition expense ratio 8.9% 18.5% 13.4% 13.8% General and administrative expense ratio 11.8% 10.8% 11.3% 11.4% Combined ratio 92.6% 136.2% 113.1% 112.6% EFFECT OF PRIOR ACCIDENT YEAR RESERVE DEVELOPMENT FAVORABLE / (UNFAVORABLE) GAAP RATIOS Loss ratio 6.4% (0.8)% 3.0% 3.6% NET OF PRIOR ACCIDENT YEAR RESERVE DEVELOPMENT GAAP RATIOS Loss ratio 78.3% 106.1% 91.4% 91.0% Acquisition expense ratio 8.9% 18.5% 13.4% 13.8% General and administrative expense ratio 11.8% 10.8% 11.3% 11.4% Combined ratio 99.0% 135.4% 116.1% 116.2% [a] The difference between "Total Company Sub-total" and "Reported Totals" represents deposit accounted contracts that are excluded for internal management reporting purposes. However, for financial statement presentation purposes, management determined that certain reinsurance contracts written during the period were more appropriately accounted for under the deposit method of accounting specified by AICPA SOP 98-7 whereby net premiums due on such contracts were recorded as deposit liabilities. The adjustment herein reconciles the Company's loss ratio by segment to the Company's financial statement presentation. 9

15 INSURANCE SEGMENT DATA FOR THE QUARTERS ENDED SEPT. 30, 2008 JUNE 30, 2008 MAR. 31, 2008 DEC. 31, 2007 SEPT. 30, 2007 SEPT. 30, 2006 UNDERWRITING REVENUES Gross premiums written $372,936 $271,973 $585,134 $216,510 $180,046 $156,781 Net premiums written $248,601 $234,390 $356,141 $154,476 $137,404 $98,328 Net premiums earned $270,298 $245,383 $167,982 $137,060 $130,640 $90,062 UNDERWRITING EXPENSES Losses and loss expenses $194,477 $188,171 $130,950 $93,553 $69,709 $57,165 Acquisition expenses 24,065 29,000 23,117 22,145 19,542 8,492 General and administrative expenses 31,675 25,071 20,561 27,200 21,988 13,760 Total expenses $250,217 $242,242 $174,628 $142,898 $111,239 79,417 UNDERWRITING INCOME (LOSS) $20,081 $3,141 ($6,646) ($5,838) $19,401 $10,645 GAAP RATIOS Loss ratio 71.9% 76.7% 78.0% 68.3% 53.4% 63.5% Acquisition expense ratio 8.9% 11.8% 13.8% 16.2% 14.9% 9.4% General and administrative expense ratio 11.8% 10.2% 12.2% 19.8% 16.8% 15.3% Combined ratio 92.6% 98.7% 104.0% 104.3% 85.1% 88.2% STATUTORY RATIOS Loss ratio 71.9% 76.7% 78.0% 68.3% 53.4% 63.5% Acquisition expense ratio 8.8% 13.8% 7.7% 16.9% 17.4% 17.0% General and administrative expense ratio 12.5% 13.4% 5.5% 18.1% 15.9% 12.2% Combined ratio 93.2% 103.9% 91.2% 103.3% 86.7% 92.7% 10

16 REINSURANCE SEGMENT DATA FOR THE QUARTERS ENDED SEPT. 30, 2008 JUNE 30, 2008 MAR. 31, 2008 DEC. 31, 2007 SEPT. 30, 2007 SEPT. 30, 2006 UNDERWRITING REVENUES Gross premiums written $251,228 $246,386 $285,478 $66,039 $243,787 $326,061 Net premiums written $245,442 $235,291 $286,667 $65,791 $240,774 $293,723 Net premiums earned $240,975 $210,001 $205,735 $267,772 $275,776 $353,868 UNDERWRITING EXPENSES Losses and loss expenses $257,514 $86,737 $61,202 $42,134 $119,798 $158,804 Acquisition expenses 44,529 47,499 51,157 70,641 58,478 83,244 General and administrative expenses 26,096 27,422 29,483 37,455 33,133 34,775 Total expenses $328,139 $161,658 $141,842 $150,230 $211, ,823 UNDERWRITING (LOSS) INCOME ($87,164) $48,343 $63,893 $117,542 $64,367 $77,045 GAAP RATIOS Loss ratio 106.9% 41.3% 29.7% 15.7% 43.5% 44.9% Acquisition expense ratio 18.5% 22.6% 24.9% 26.4% 21.2% 23.5% General and administrative expense ratio 10.8% 13.1% 14.3% 14.0% 12.0% 9.8% Combined ratio 136.2% 77.0% 68.9% 56.1% 76.7% 78.2% STATUTORY RATIOS Loss ratio 106.9% 41.3% 29.7% 15.7% 43.5% 44.9% Acquisition expense ratio 22.7% 22.6% 19.4% 47.1% 27.4% 29.7% General and administrative expense ratio 10.6% 11.7% 10.3% 56.9% 13.8% 11.8% Combined ratio 140.2% 75.6% 59.4% 119.7% 84.7% 86.4% Note: For internal management reporting purposes, underwriting results by segment are presented on the basis of applying reinsurance accounting to all reinsurance contracts written. Howev for financial statement presentation purposes, management determined that certain reinsurance contracts written during the period were more appropriately accounted for under the deposit method of accounting specified by AICPA SOP 98-7 whereby net premiums due on such contracts were recorded as deposit liabilities. For the impact of deposit accounting on segment results, refer to page

17 SEGMENT GROSS PREMIUMS WRITTEN BY LINE OF BUSINESS FOR THE QUARTERS ENDED SEPT. 30, 2008 JUNE 30, 2008 MAR. 31, 2008 DEC. 31, 2007 SEPT. 30, 2007 SEPT. 30, 2006 INSURANCE SEGMENT Property $35,574 $52,360 $31,183 $37,905 $28,379 $47,860 Casualty 29,196 38,737 25,124 25,851 30,133 28,294 Healthcare liability 28,010 25,485 16,492 15,256 30,262 37,812 Workers' compensation 41,709 69,888 83,480 73,054 70,398 24,993 Agriculture 195,852 50, ,419 42, Professional lines 42,595 34,582 15,436 22,202 20,874 17,822 TOTAL INSURANCE $372,936 $271,973 $585,134 $216,510 $180,046 $156,781 REINSURANCE SEGMENT Casualty $53,890 $36,244 $69,301 $15,301 $66,006 $86,933 Property 113,080 34,886 36,248 14, , ,235 Catastrophe 65, , ,234 13,499 43,684 49,385 Agriculture 3,452 5,822 10,911 7,230 6,917 16,324 Aerospace and Marine 9,814 24,250 36,536 11,660 9,179 33,998 Surety and other specialty 5,167 14,967 27,248 4,137 5,594 15,186 TOTAL REINSURANCE $251,228 $246,386 $285,478 $66,039 $243,787 $326,061 TOTAL COMPANY SUBTOTAL $624,164 $518,359 $870,612 $282,549 $423,833 $482,842 DEPOSIT ACCOUNTING ADJUSTMENT [a] (20) (296) (2,021) (4,799) (562) (6,629) REPORTED TOTALS $624,144 $518,063 $868,591 $277,750 $423,271 $476,213 [a] For internal management reporting purposes, underwriting results by segment are presented on the basis of applying reinsurance accounting to all reinsurance contracts written. However, for financial statement presentation purposes, management determined that certain reinsurance contracts written during the period were more appropriately accounted for under the deposit method of accounting specified by AICPA SOP 98-7 whereby net premiums due on such contracts were recorded as deposit liabilities. The adjustment herein reconciles the Company's gross premiums written by segment to the Company's financial statement presentation. 12

18 SEGMENT NET PREMIUMS WRITTEN BY LINE OF BUSINESS FOR THE QUARTERS ENDED SEPT. 30, 2008 JUNE 30, 2008 MAR. 31, 2008 DEC. 31, 2007 SEPT. 30, 2007 SEPT. 30, 2006 INSURANCE SEGMENT Property $20,901 $36,641 $15,003 $16,827 $7,689 $4,397 Casualty 18,141 34,953 15,113 16,144 16,467 16,194 Healthcare liability 27,636 25,169 16,492 15,256 30,262 37,812 Workers' compensation 37,685 63,482 75,906 66,428 64,131 22,215 Agriculture 109,159 44, ,400 21, Professional lines 35,079 29,952 11,227 18,706 18,855 17,710 TOTAL INSURANCE $248,601 $234,390 $356,141 $154,476 $137,404 $98,328 REINSURANCE SEGMENT Casualty $53,889 $36,273 $70,503 $14,908 $65,946 $86,716 Property 113,080 34,886 36,220 14, , ,146 Catastrophe 60, , ,156 13,499 41,025 31,282 Agriculture 3,769 5,187 10,911 7,230 7,028 15,483 Aerospace and Marine 8,838 21,916 36,626 11,805 8,390 28,946 Surety and other specialty 5,167 14,798 27,251 4,137 5,987 15,150 TOTAL REINSURANCE $245,442 $235,291 $286,667 $65,791 $240,774 $293,723 TOTAL COMPANY SUBTOTAL $494,043 $469,681 $642,808 $220,267 $378,178 $392,051 DEPOSIT ACCOUNTING ADJUSTMENT [a] (20) (296) (2,021) (4,799) (562) (6,629) REPORTED TOTALS $494,023 $469,385 $640,787 $215,468 $377,616 $385,422 [a] For internal management reporting purposes, underwriting results by segment are presented on the basis of applying reinsurance accounting to all reinsurance contracts written. However, for financial statement presentation purposes, management determined that certain reinsurance contracts written during the period were more appropriately accounted for under the deposit method of accounting specified by AICPA SOP 98-7 whereby net premiums due on such contracts were recorded as deposit liabilities. The adjustment herein reconciles the Company's gross premiums written by segment to the Company's financial statement presentation. 13

19 CONSOLIDATED SEGMENT DATA FOR THE NINE MONTHS ENDED SEPT. 30, 2008 Total Deposit Company Accounting Reported Insurance Reinsurance Sub-total Adjustment [a] Totals UNDERWRITING REVENUES Gross premiums written $1,230,043 $783,092 $2,013,135 ($2,337) $2,010,798 Net premiums written $839,132 $767,400 $1,606,532 ($2,337) $1,604,195 Net premiums earned $683,662 $656,712 $1,340,374 ($5,617) $1,334,757 Other underwriting loss (1,519) (1,519) Total underwriting revenues $683,662 $656,712 $1,340,374 ($7,136) $1,333,238 UNDERWRITING EXPENSES Losses and loss expenses $513,598 $405,451 $919,049 ($8,721) $910,328 Acquisition expenses 76, , ,367 1, ,608 General and administrative expenses 77,308 83, , ,308 Total expenses $667,088 $631,636 $1,298,724 ($7,480) $1,291,244 UNDERWRITING INCOME $16,574 $25,076 $41,650 $344 $41,994 GAAP RATIOS Loss ratio 75.1% 61.7% 68.6% 155.3% 68.2% Acquisition expense ratio 11.2% 21.8% 16.4% (22.1)% 16.5% General and administrative expense ratio 11.3% 12.7% 11.9% % Combined ratio 97.6% 96.2% 96.9% 133.2% 96.7% STATUTORY RATIOS Loss ratio 75.1% 61.7% 68.6% 155.3% 68.2% Acquisition expense ratio 9.7% 21.4% 15.3% (78.5)% 15.5% General and administrative expense ratio 9.8% 10.8% 10.3% % Combined ratio 94.6% 93.9% 94.2% 76.8% 94.0% [a] For internal management reporting purposes, underwriting results by segment are presented on the basis of applying reinsurance accounting to all reinsurance contracts written. However, for financial statement presentation purposes, management determined that certain reinsurance contracts written during the period were more appropriately accounted for under the deposit method of accounting specified by AICPA SOP 98-7 whereby net premiums due on such contracts were recorded as deposit liabilities. The adjustment herein reconciles the Company's underwriting results by segment to the Company's financial statement presentation. 14

20 CONSOLIDATED FINANCIAL RATIOS FOR THE NINE MONTHS ENDED SEPT. 30, 2008 AS REPORTED Total Company Reported Insurance Reinsurance Sub-total Totals [a] GAAP RATIOS Loss ratio 75.1% 61.7% 68.6% 68.2% Acquisition expense ratio 11.2% 21.8% 16.4% 16.5% General and administrative expense ratio 11.3% 12.7% 11.9% 12.0% Combined ratio 97.6% 96.2% 96.9% 96.7% EFFECT OF PRIOR ACCIDENT YEAR RESERVE DEVELOPMENT FAVORABLE / (UNFAVORABLE) GAAP RATIOS Loss ratio 6.8% 10.2% 8.5% 8.7% NET OF PRIOR ACCIDENT YEAR RESERVE DEVELOPMENT GAAP RATIOS Loss ratio 81.9% 71.9% 77.1% 76.9% Acquisition expense ratio 11.2% 21.8% 16.4% 16.5% General and administrative expense ratio 11.3% 12.7% 11.9% 12.0% Combined ratio 104.4% 106.4% 105.4% 105.4% [a] The difference between "Total Company Sub-total" and "Reported Totals" represents deposit accounted contracts that are excluded for internal management reporting purposes. However, for financial statement presentation purposes, management determined that certain reinsurance contracts written during the period were more appropriately accounted for under the deposit method of accounting specified by AICPA SOP 98-7 whereby net premiums due on such contracts were recorded as deposit liabilities. The adjustment herein reconciles the Company's loss ratio by segment to the Company's financial statement presentation. 15

21 INSURANCE SEGMENT DATA FOR THE NINE MONTHS ENDED FOR THE YEARS ENDED SEPT. 30, 2008 SEPT. 30, 2007 SEPT. 30, 2006 DEC. 31, 2007 DEC. 31, 2006 UNDERWRITING REVENUES Gross premiums written $1,230,043 $525,046 $396,161 $741,556 $576,745 Net premiums written $839,132 $397,494 $278,201 $551,970 $416,637 Net premiums earned $683,662 $365,021 $268,841 $502,082 $371,762 UNDERWRITING EXPENSES Losses and loss expenses $513,598 $196,660 $168,940 $290,213 $252,310 Acquisition expenses 76,182 49,844 21,147 72,044 32,528 General and administrative expenses 77,308 62,796 35,542 89,996 49,524 Total expenses $667,088 $309,300 $225,629 $452,253 $334,362 UNDERWRITING INCOME $16,574 $55,721 $43,212 $49,829 $37,400 GAAP RATIOS Loss ratio 75.1% 53.9% 62.8% 57.8% 67.9% Acquisition expense ratio 11.2% 13.6% 7.9% 14.4% 8.7% General and administrative expense ratio 11.3% 17.2% 13.2% 17.9% 13.3% Combined ratio 97.6% 84.7% 83.9% 90.1% 89.9% STATUTORY RATIOS Loss ratio 75.1% 53.9% 62.8% 57.8% 67.9% Acquisition expense ratio 9.7% 16.5% 11.4% 16.6% 13.9% General and administrative expense ratio 9.8% 15.7% 10.9% 16.4% 10.5% Combined ratio 94.6% 86.1% 85.1% 90.8% 92.3% 16

22 REINSURANCE SEGMENT DATA FOR THE NINE MONTHS ENDED FOR THE YEARS ENDED SEPT. 30, 2008 SEPT. 30, 2007 SEPT. 30, 2006 DEC. 31, 2007 DEC. 31, 2006 UNDERWRITING REVENUES Gross premiums written $783,092 $1,002,075 $1,254,576 $1,068,114 $1,371,889 Net premiums written $767,400 $985,769 $1,210,798 $1,051,560 $1,327,919 Net premiums earned $656,712 $891,489 $1,108,901 $1,159,261 $1,447,167 UNDERWRITING EXPENSES Losses and loss expenses $405,451 $460,670 $627,479 $502,804 $696,962 Acquisition expenses 143, , , , ,194 General and administrative expenses 83,000 89, , , ,849 Total expenses $631,636 $734,991 $989,741 $885,168 $1,179,005 UNDERWRITING INCOME $25,076 $156,498 $119,160 $274,093 $268,162 GAAP RATIOS Loss ratio 61.7% 51.7% 56.6% 43.4% 48.2% Acquisition expense ratio 21.8% 20.7% 23.4% 22.0% 23.6% General and administrative expense ratio 12.7% 10.0% 9.3% 11.0% 9.7% Combined ratio 96.2% 82.4% 89.3% 76.4% 81.5% STATUTORY RATIOS Loss ratio 61.7% 51.7% 56.6% 43.4% 48.2% Acquisition expense ratio 21.4% 20.4% 22.8% 22.1% 23.5% General and administrative expense ratio 10.8% 9.1% 8.5% 12.1% 10.6% Combined ratio 93.9% 81.2% 87.9% 77.6% 82.3% Note: For internal management reporting purposes, underwriting results by segment are presented on the basis of applying reinsurance accounting to all reinsurance contracts written. However, for financial statement presentation purposes, management determined that certain reinsurance contracts written during the period were more appropriately accounted for under the deposit method of accounting specified by AICPA SOP 98-7 whereby net premiums due on such contracts were recorded as deposit liabilities. For the impact of deposit accounting on segment results, refer to page

23 SEGMENT GROSS PREMIUMS WRITTEN BY LINE OF BUSINESS FOR THE NINE MONTHS ENDED FOR THE YEARS ENDED SEPT. 30, 2008 SEPT. 30, 2007 SEPT. 30, 2006 DEC. 31, 2007 DEC. 31, 2006 INSURANCE SEGMENT Property $119,116 $96,256 $129,024 $134,161 $173,292 Casualty 107,642 99,273 92, , ,933 Healthcare liability 69,987 77,105 89,921 92, ,988 Workers' compensation 195, ,173 31, ,228 93,779 Agriculture 660, ,242 - Professional lines 78,029 63,239 52,835 85,440 73,753 TOTAL INSURANCE $1,230,043 $525,046 $396,161 $741,556 $576,745 REINSURANCE SEGMENT Casualty $159,434 $185,730 $349,700 $201,032 $400,111 Property 184, , , , ,883 Catastrophe 301, , , , ,755 Agriculture 20, , , , ,104 Aerospace and Marine 70,600 81, ,064 92, ,203 Surety and other specialty 47,382 64,754 72,028 68,892 73,833 TOTAL REINSURANCE $783,092 $1,002,075 $1,254,576 $1,068,114 $1,371,889 TOTAL COMPANY SUBTOTAL $2,013,135 $1,527,121 $1,650,737 $1,809,670 $1,948,634 DEPOSIT ACCOUNTING ADJUSTMENT [a] (2,337) (23,756) (151,890) (28,555) (158,992) REPORTED TOTALS $2,010,798 $1,503,365 $1,498,847 $1,781,115 $1,789,642 [a] For internal management reporting purposes, underwriting results by segment are presented on the basis of applying reinsurance accounting to all reinsurance contracts written. However, for financial statement presentation purposes, management determined that certain reinsurance contracts written during the period were more appropriately accounted for under the deposit method of accounting specified by AICPA SOP 98-7 whereby net premiums due on such contracts were recorded as deposit liabilities. The adjustment herein reconciles the Company's gross premiums written by segment to the Company's financial statement presentation. 18

24 SEGMENT NET PREMIUMS WRITTEN BY LINE OF BUSINESS FOR THE NINE MONTHS ENDED FOR THE YEARS ENDED SEPT. 30, 2008 SEPT. 30, 2007 SEPT. 30, 2006 DEC. 31, 2007 DEC. 31, 2006 INSURANCE SEGMENT Property $72,545 $31,078 $41,786 $47,905 $61,290 Casualty 68,207 61,044 65,512 77,188 89,817 Healthcare liability 69,297 77,105 89,921 92, ,988 Workers' compensation 177, ,941 28, ,369 86,867 Agriculture 375, ,115 - Professional lines 76,259 56,326 52,722 75,032 71,675 TOTAL INSURANCE $839,132 $397,494 $278,201 $551,970 $416,637 REINSURANCE SEGMENT Casualty $160,664 $185,478 $346,295 $200,385 $396,663 Property 184, , , , ,795 Catastrophe 288, , , , ,126 Agriculture 19, , , , ,262 Aerospace and Marine 67,381 78, ,447 90, ,586 Surety and other specialty 47,216 64,448 68,830 68,586 70,487 TOTAL REINSURANCE $767,400 $985,769 $1,210,798 $1,051,560 $1,327,919 TOTAL COMPANY SUBTOTAL $1,606,532 $1,383,263 $1,488,999 $1,603,530 $1,744,556 DEPOSIT ACCOUNTING ADJUSTMENT [a] (2,337) (23,756) (151,890) (28,555) (158,992) REPORTED TOTALS $1,604,195 $1,359,507 $1,337,109 $1,574,975 $1,585,564 [a] For internal management reporting purposes, underwriting results by segment are presented on the basis of applying reinsurance accounting to all reinsurance contracts written. However, for financial statement presentation purposes, management determined that certain reinsurance contracts written during the period were more appropriately accounted for under the deposit method of accounting specified by AICPA SOP 98-7 whereby net premiums due on such contracts were recorded as deposit liabilities. The adjustment herein reconciles the Company's gross premiums written by segment to the Company's financial statement presentation. 19

25 DEPOSIT ACCOUNTING ADJUSTMENT IMPACTS ON SEGMENT DATA FOR THE QUARTER ENDED SEPT. 30, 2008 Includes Deposit Accounting Adjustments Excludes Deposit Accounting Adjustments Total Total Insurance Reinsurance Company Insurance Reinsurance Company UNDERWRITING REVENUES Gross premiums written $372,936 $251,208 $624,144 $372,936 $251,228 $624,164 Net premiums written $248,601 $245,422 $494,023 $248,601 $245,442 $494,043 Net premiums earned $270,298 $239,331 $509,629 $270,298 $240,975 $511,273 Other underwriting loss --- (2,712) (2,712) Total underwriting revenues $270,298 $236,619 $506,917 $270,298 $240,975 $511,273 UNDERWRITING EXPENSES Losses and loss expenses $194,477 $251,024 $445,501 $194,477 $257,514 $451,991 Acquisition expenses 24,065 46,533 70,598 24,065 44,529 68,594 General and administrative expenses 31,675 26,096 57,771 31,675 26,096 57,771 Total expenses $250,217 $323,653 $573,870 $250,217 $328,139 $578,356 UNDERWRITING INCOME (LOSS) $20,081 ($87,034) ($66,953) $20,081 ($87,164) ($67,083) GAAP RATIOS Loss ratio 71.9% 104.9% 87.4% 71.9% 106.9% 88.4% Acquisition expense ratio 8.9% 19.4% 13.9% 8.9% 18.5% 13.4% General and administrative expense ratio 11.8% 10.9% 11.3% 11.8% 10.8% 11.3% Combined ratio 92.6% 135.2% 112.6% 92.6% 136.2% 113.1% 20

26 DEPOSIT ACCOUNTING ADJUSTMENT IMPACTS ON SEGMENT DATA FOR THE NINE MONTHS ENDED SEPT. 30, 2008 Includes Deposit Accounting Adjustments Excludes Deposit Accounting Adjustments Total Total Insurance Reinsurance Company Insurance Reinsurance Company UNDERWRITING REVENUES Gross premiums written $1,230,043 $780,755 $2,010,798 $1,230,043 $783,092 $2,013,135 Net premiums written $839,132 $765,063 $1,604,195 $839,132 $767,400 $1,606,532 Net premiums earned $683,662 $651,095 $1,334,757 $683,662 $656,712 $1,340,374 Other underwriting loss --- (1,519) (1,519) Total underwriting revenues $683,662 $649,576 $1,333,238 $683,662 $656,712 $1,340,374 UNDERWRITING EXPENSES Losses and loss expenses $513,598 $396,730 $910,328 $513,598 $405,451 $919,049 Acquisition expenses 76, , ,608 76, , ,367 General and administrative expenses 77,308 83, ,308 77,308 83, ,308 Total expenses $667,088 $624,156 $1,291,244 $667,088 $631,636 $1,298,724 UNDERWRITING INCOME $16,574 $25,420 $41,994 $16,574 $25,076 $41,650 GAAP RATIOS Loss ratio 75.1% 60.9% 68.2% 75.1% 61.7% 68.6% Acquisition expense ratio 11.2% 22.2% 16.5% 11.2% 21.8% 16.4% General and administrative expense ratio 11.3% 12.7% 12.0% 11.3% 12.7% 11.9% Combined ratio 97.6% 95.8% 96.7% 97.6% 96.2% 96.9% 21

27 RETURN ON EQUITY ANALYSIS FOR THE NINE MONTHS ENDED SEPT. 30, 2008 Average common equity [a] $2,190,488 Net premiums earned $1,334,757 Combined ratio 96.7% Operating margin 3.3% Premium leverage 0.61x Implied ROAE from underwriting activity 2.0% ` Average cash and invested assets at amortized cost $5,654,259 Investment leverage 2.58x Year to date investment income yield, pretax 2.4% Implied ROAE from investment activity 6.2% Financing Costs [b] (1.6)% Implied Pre-tax Operating ROAE, for period [c] 6.6% Implied Pre-tax Operating ROAE, annualized [c] 8.8% [a] [b] [c] Average common equity is calculated as the arithmetic average of the beginning and ending common equity balances for the stated periods, which excludes the $200 million liquidation value of the preferred shares. Financing costs include interest expense and preferred dividends. Implied pre-tax Operating ROAE considers only the main components of the Company's return on equity -- underwriting and investment returns. As such, it differs from operating ROE primarily due to the exclusion of tax on underwriting and investment profits and the tax-effected impact of amortization and interest expense. 22

28 ANNUALIZED OPERATING & INVESTMENT LEVERAGE FOR THE QUARTERS ENDED YEARS ENDED DECEMBER 31, SEPT. 30, 2008 JUNE 30, 2008 MAR. 31, 2008 DEC. 31, Average common equity [a] $2,201,306 $2,336,035 $2,325,217 $2,318,940 $2,083,296 $1,885,209 Net premiums earned $509,629 $453,085 $372,043 $400,462 $1,594,800 $1,638,574 Operating leverage 0.23x 0.19x 0.16x 0.17x 0.77x 0.87x Annualized operating leverage 0.92x 0.78x 0.64x 0.69x 0.77x 0.87x Avgerage cash and invested assets at amortized cost $5,604,765 $5,593,901 $5,579,783 $5,691,919 $5,559,204 $5,275,481 Investment leverage 2.55x 2.39x 2.40x 2.45x 2.67x 2.80x [a] Average common equity is calculated as the arithmetic average of the beginning and ending equity balances for the stated periods and excludes the $200 million liquidation value of the preferred shares. 23

29 INVESTMENT PORTFOLIO AS OF SEPTEMBER 30, 2008 Type of Investment Fair Value Percentage Cash and equivalents [a] $666, % U.S. government and government agencies notes [f] 981, % Corporate securities [g] 668, % Foreign government 171, % Municipals 103, % Asset-backed securities 296, % U.S. government agency mortgage-backed securities 1,224, % Non-agency mortgage-backed securities 1,089, % Other investments [b] 338, % Total $5,540, % Ratings [e] Fair Value Percentage U.S. government and government agencies notes $981, % AAA/Aaa 2,903, % AA/Aa 291, % A/A 277, % BBB 23, % Below BBB 56, % Not Rated Other investments [b] 338, % Total $4,873, % Performance Sept. 30, 2008 Yield [c] 3.2% Duration [d] 3.17 Quarter Ended Quarter Ended Quarter Ended Quarter Ended Investment Income Sept. 30, 2008 June 30, 2008 Mar. 31, 2008 Dec. 31, 2007 Other Investments ($32,789) ($519) ($16,112) ($898) Total net investment income $27,410 $60,482 $46,878 $65,310 Note: [a] Cash and equivalents are shown net of investments pending settlement. [b] Other investments includes investments in alternative and high yield bank loan funds [c] Annualized earned yield excludes realized and unrealized gains and losses on fixed maturity investments [d] Duration excludes other investments and operating cash. [e] Excludes cash and equivalents. [f] Includes short term investments. [g] Includes corporate debt and fixed income preferred securities. 24

30 STRUCTURED SECURITIES DETAIL AS OF SEPTEMBER 30, 2008 Percentage of Securitized (RMBS, CMBS, ABS and CDO) securities ratings Fair Value Percentage Investment Portfolio U.S. Government and agencies $1,224, % 22.1% AAA/Aaa 1,331, % 24.0% AA/Aa 12, % 0.2% A/A 12, % 0.2% BBB 20, % 0.4% Below BBB 9, % 0.2% Total $2,610, % 47.1% Percentage of Structured securities sectors (RMBS, CMBS, ABS and CDO) Fair Value Percentage Investment Portfolio Commercial Agency $37, % 0.7% Non Agency 634, % 11.4% Residential Agency 1,186, % 21.4% Non Agency 480, % 8.7% Consumer 271, % 4.9% Total $2,610, % 47.1% Spread Duration 3.58 years Percentage of Commercial real estate collateralized debt obligations ( CRE CDO's) Fair Value Percentage Investment Portfolio AAA/Aaa $ % 0.0% AA/Aa % 0.0% A/A 1, % 0.0% BBB 1, % 0.0% Below BBB % 0.0% Total $5, % 0.1% Spread Duration 3.50 years 25

31 TWENTY-FIVE LARGEST CORPORATE HOLDINGS AS OF SEPTEMBER 30, 2008 September 30, 2008 Amortized Unrealized Credit ISSUER (1) (2) (4) Cost Fair Value Gain (Loss) Quality (3) CITIGROUP INC $35,519 $33,416 ($2,032) AA JPMORGAN CHASE & CO 25,767 24,620 (1,147) A WELLS FARGO & COMPANY 23,077 22,766 (311) AA PRUDENTIAL FINANCIAL INC 20,969 20,653 (316) A AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED 19,150 18,323 (1,113) A ORACLE CORPORATION 17,634 17,128 (506) A ING GROEP NV 15,909 14,673 (1,236) A GENERAL ELECTRIC CO 15,434 14,297 (1,349) AAA HBOS PLC 15,714 13,573 (1,965) A ROYAL BANK OF SCOTLAND GROUP PLC 15,951 13,507 (2,390) A VERIZON COMMUNICATIONS INC. 13,715 13,397 (318) A HSBC HOLDINGS PLC 13,933 13,291 (643) AA AT&T INC 12,909 12,798 (111) A VODAFONE GROUP PLC 12,595 12,459 (136) A BANK OF AMERICA CORP 11,329 10,940 (513) AA SIEMENS AG 9,412 9, AA MIDAMERICAN ENERGY COMPANY 8,622 8,586 (37) A METLIFE INC 8,519 8,315 (231) AA DEERE & CO 8,046 8, A ASTRAZENECA PLC 8,164 8,083 (77) AA CISCO SYSTEMS, INC. 8,216 8,033 (183) A GENWORTH FINANCIAL INC. 9,000 7,920 (1,080) A GOLDMAN SACHS GROUP INC/THE 8,743 7,784 (959) AA TOTAL SA 6,848 6, AA HARTFORD FINANCIAL SERVICES GROUP 6,478 6,399 (79) A (1) Corporate issuers exclude government-backed, government-sponsored enterprises, covered bonds and cash and cash equivalents. (2) Credit exposures represent only direct exposure to fixed maturities and short term investments of the parent issuer and its major subsidiaries. These exposures exclude asset and mortgage-backed securities that were issued, sponsored or serviced by the parent. (3) Represents weighted average credit quality of underlying issues. (4) Excludes fixed income preferred securities. 26